Variety is the spice of house building

The government recently published Sir Oliver Letwin’s draft analysis on so-called ‘land banks’ which focuses on the delay between obtaining an implementable planning consent and the completion of new homes. We take a look at some of the key findings published in the draft report.

Background

The review focuses on large sites in areas of high housing demand, and seeks to determine actual build out rates on those sites, why those rates are as they are and what factors might increase build out rates without other untoward effects, such as a decrease in the open market value of existing homes. Sites visited as part of the review include Nine Elms, Wandsworth (comprising circa 20,000 dwellings), Barking Riverside, Barking and Dagenham (circa 10,800 dwellings), Eastern Quarry, Ebbsfleet, Ebbsfleet Development Corporation (circa 6,250 dwellings) and Wembley Park, Brent (circa 3,500 dwellings).

The issue

In brief, build out rates on large sites are managed with regard to “absorption rates”, being the rate at which new homes can be sold into the local market without disturbing the existing market price. Absorption rates have been found largely to be determined by the type (including size, design, context and tenure) and pricing of the new homes built. The report concludes that the absorption rate is restricted due to the current ‘homogeneous’ products available in the market. 

Sir Oliver Letwin concludes that if the major house builders offer

“much more housing of varying types, designs and tenures (and, indeed, more distinct settings, landscapes and street-scapes) on the large sites” then absorption rates and therefore house build out rates could be substantially accelerated.

Other possible constraints

The report also considers a number of other possible constraints and whether these impact upon the absorption rate.

Lack of transport infrastructure

It is obvious that faster resolution of major infrastructure issues can bring forward the timing of opening up new sites for housing delivery (and unlock the potential for housing at existing sites (as was the case at the Olympic Park)).  Whilst a welcome approach, Sir Oliver Letwin believes that doing so would not have any noticeable impact on the build out rates after implementation.  He nevertheless urges collective working across government to assist in the provision of major infrastructure.

Limited availability of skilled labour and limited supply of building materials

Rather unsurprisingly the investigation has found that the availability of materials and labour is a significant concern for major house builders. Sir Oliver concludes that if there is a reasonable level of assurance as to the future of materials being required, then investment in production is likely to follow with any gap filled by imports. He also notes that skilled labour is or could generally be available to meet demand even if rates of construction increase, albeit he seeks further data in certain areas, and identifies potential for a shortage of bricklayers requiring investment in training. Overall, the shortage of skills and materials are recurring themes amongst those sites on which the review is based.

Solutions include importing materials from Europe in order to maintain production. For example at Nine Elms off-site manufactured bathroom pods were imported in order to reduce the need for plumbers, despite this being reported to be at an additional cost of 40-60%. Some of the sites are looking at modular construction methods, however it was pointed out within the assessment that this may not offer the flexibility required from using a mix of traditional methods and modular construction depending on local supply chain, which can lower lead-in times. Other issues include the significant length of time it can take to train staff (which can be as long as 3 years).

Land banking

There has been no recent shortage of accusations that house builders ‘land bank’ (i.e. lock up land and reduce active construction sites). Sir Oliver Letwin agrees that a type of land banking exists (led by the capacity of the market to absorb houses and not affect prices) but dismisses claims that the major builders are attempting to influence the market by “locking up” land through options and agreements. He addresses the issue head on and provides a sensible rationale behind major house builders holding large amounts of land: to maintain a sustainable business. He does not dismiss the idea that holding land might be attractive to certain investors.

Other possible constraints discussed include:

• Difficulties of land remediation
• Delayed installations by utility companies
• Constrained site logistics, and
• Limited availability of capital

Conclusion

Offering a variety of housing sounds a simple solution but implementing planning policy requiring developers to viably abide and provide such housing is not. Whilst certain elements of the ‘variety’ required to assist with the absorption rate are ascertainable (such as tenure and type), good design is and will always remain subjective.

The review provides much food for thought on current issues in the housing market, but the key will be to see how this translates into policy. Sir Oliver acknowledges that there is no ‘one size fits all’ solution and we predict a range of both short and long term measures to be put forward by the time of the budget in Autumn.

This article was written by Sejal Patel. For more information please contact Sejal on +44 (0)20 7203 5134 or sejal.patel@crsblaw.com